Cosmo First Ltd

NSE:COSMOFIRST

Earnings Call Analysis

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the investor call of Cosmo First Limited to discuss the Q3 and 9-month FY '24 results. Today, we have with us from the management group CEO, Mr. Pankaj Poddar; and Group CFO, Mr. Neeraj Jain. Starting off with statutory declarations. Certain statements in the conference call may be forward-looking. These statements are based on management's current expectations and are subject to uncertainties and changes in the [ circumstances ]. These statements are not guarantees of future results. [Operator Instructions] Please note that this conference is being record. I now -- may I request Mr. Neeraj Jain, CFO of Cosmo First Limited, to take us through his opening remarks, subsequent to which we can open the floor for Q&A. Thank you, and over to you, sir.

[Neeraj Jain, executive]

Thank you very much. Very good afternoon, ladies and gentlemen. I am Neeraj Jain, Group CFO at Cosmo First, along with my colleague,Mr. Pankaj Poddar, Group CEO of Cosmo First. Our financial results for December '23 quarter and investors' presentation, both are available on the company's website, you may like to read it through. We will start the call with a brief on the performance of the company, which may be followed by questions. First talking about flexible packaging business. During December '23 quarter, the domestic margin, both on BOPP and BOPET films shrank further due to desperate and below cost selling resorted by the industry. The company could withstand this orderly market movements and outperformed the industry at large on the strength of its Speciality Films portfolio. BOPP films margin has been running at close to INR 9 per kg during December '23 quarter as against INR 18 per kg during September '23 quarter. BOPET margins were a negative on commodity part of business. Overall, the margins remain historically lowest. The company could post 9% consolidated EBITDA, mainly on the back of the specialty film and outperformed as we discussed. Consolidated sales for December '23 quarter is INR 625 crores, which is 6% lower compared to September '23 quarter, mainly due to lower volume. The company actually has kept about 5% of capacity under shutdown due to lower margins running in the industry. Out of the capacity shutdown in quarter 3, we partially -- company has restarted the sales from January '24 onwards. Coming to the EBITDA for the quarter is INR 56 crores as compared to INR 72 crores in September '23 quarter. As indicated earlier, the EBITDA is lower due to further growth in domestic margin, both in BOPP and BOPET films. The near-term outlook for BOPP and BOPET margins is expected to remain subdued because of substantial capacity addition in the industry. At the same time, we are expecting some upcoming capacity to get deferred, which should help in normalization of margins in medium term, although it will be very difficult to time the same. The company's credit rating has been reaffirmed by CRISIL as AA minus, along with a stable outlook in January 2024. During December '23 quarters, the company has commenced operations of 2 business verticals related to packaging industry. First, metallized capacitor film for electronic industry, second, Rigid Packaging under the brand name Plastech. The company is expecting to reach full capacity utilization of capacitor film metalizer in quarter 1 of FY '25. The capacitor metalizer is estimated to generate close to INR 40 crores of annual sales at full capacity utilization with double-digit EBITDA, which we expect from FY '25. The market size of capacitor films in India is about 15,000 metric tone in Phase I, Cosmo's capacities, 600 metric tons annually. Coming to Rigid Packaging business launched under the brand name Cosmo Plastech, this actually will manufacture in-wall containers and sheets for a wide range of FMCG products, particularly for food industry. It's a very large market of about INR 10,000 crores in India. Cosmo's capacity in Phase 1 will be close to 5,000 metric tons, which can generate between INR 75 crores to INR 80 crores of annual sales at full capacity utilization. The market with strong for Plastech launch has been very exciting, very good, and company expect to hit more than 80% CapEx to utilization in the next 2 to 3 quarters, with, of course, contribution towards EBITDA. The company, if you recollect previous quarter, we announced some core specialization steps moving towards our initiatives are working fine as per the plan, and we expect bottom line additional cost rationalization initiatives from FY '25. We expect annual bottom line addition of between INR 45 crores to INR 50 crores from all these initiatives from FY '25. Moving to specialty films. BOPP specialty film sales is running close to 64% of total volume on December YTD basis compared to 63% last year. In BOPET as well, the company has started selling specialty for about 10% to 15% of volume. The company is working towards launch of Sun control films, high shield films and many others to enhance specialty on BOPET lines as well. Please be noted that even in such a challenging market, company's specialty margins broadly remain intact in line with the last year, except for some mix change impact and uneven orders from a specialty export customer having high margins. As we discussed earlier, we expect these specialty orders to inflow back from FY '25. Now I'll move to [ addressing ] growth projects. Work on our BOPP and CPP line is progressing in line with the plan. Both the lines will be world's largest production capacity lines and will increase Company's roduction capacity by close to 45% to 50% in a phased manner by March 2025. With high speed line and larger width, it will rationalize cost of production between 3% to 5% depending on product. Moving to company's subsidiary into specialty chemicals. The specialty chemical subsidiary is progressing as per plan and is at the cusp of delivering double-digit EBITDA with high teens earnings from FY '25. Coating chemicals and Adhesives along with Masterbatches, these 3 verticals within specialty chemicals will drive future growth for company subsidiary. Moving to Pet care verticals Zigly. Zigly has undergone revamping of its IT infrastructure, making it future ready for harnessing the exponential growth expected in the industry. The marketing attrition has been improving with improvement in RoAS, which stands for Return on Advertising Expense, and other key parameters. The current monthly revenue, which is GMV, is about INR 4 crore monthly. This is on the back of, of course, expanding retail footprints with 23 stores and increased online presence. With the exponential growth of the pet care industry in India, we are confident for Zigly to become a significant wealth creator. Moving to growth and balance sheet key indicators. The country is looking for close to INR 400 crores CapEx in the next 1.5 years broadly on the BOPP and CPP line from now onwards. Company's net debt at December '23 is close to INR 600 crores, which is 2.4x to EBITDA and 0.46x to equity, and financials remained strong. I think with this, I will take a pause and open the call for questions, please.

[Operator]

[Operator Instructions] And first question is from the line of Gaurav from Invesco Enterprises.

[Unknown Analyst]

My question to the management is that when the margins are shrinking like this, so the first thing as an investor we would like to seek is that is there any prior incident when such kind of rock-bottom margins were last observed? And second thing, the kind of even expansion that we are taking up in the BOPP and the BOPET right, so what is the rationale event when margins are shrinking like anything like this, and we are expanding our capacity. So isn't this going to increase the supply in the market and further reduce the margins, or how is it? So these are my 2 questions to the management.

[Pankaj Poddar, executive]

Yes. So as far as BOPP is concerned, there is not so much of overcapacity, though margins have certainly shrunk. I would also like to tell that, see, though we have reported 9% EBITDA, but we are having close to 2% EBITDA losses from all our new businesses, largely coming from Zigly. And then close to 2% EBITDA loss is also happening on polyester business. So effectively, if we talk about BOPP, we are -- in spite of such a tough market, we are running quite a healthy business. As far as the new capacity is coming, we are not coming up in any BOPET capacity. What we had come up was 1.5 years ago. And our clear target there is also to move into specialty. We are happy to share that by December end, we have already reached 15% Specialty. And the January, the run rate has moved to 18%. We will continue to grow our Specialty business in BOPET also. And we expect that even when there are contribution losses at a variable cost, Cosmo will be able to break even and start making money in 3 to 4 quarters from now. So there's 1 capacity addition that we are doing in BOPP. We do expect that by the time a line comes the demand and supply will be very nicely balanced and market will require a line. And obviously, what we can also say that what we are finding is that the current margins BOPP are definitely not logical because they're hardly 5% to 10% overcapacity to the market. Unfortunately, some of our competition is not able to export enough, and they are following a policy of price reduction. But to me, this is personally not sustainable for too long.

[Unknown Analyst]

Sir, within this, I asked a question that is there any prior incidents when we have observed such kind of a rock-bottom pricing? Is it in the history, last 1 decade, 2 decade, have you seen this kind of a low quarter margin?

[Pankaj Poddar, executive]

I would say, at least if you talk about since 2000 onwards, on 2, 3 occasions, it has happened that margins have remained subdued for close to a year or so. The good thing is in the past, whenever such things has happened, Cosmo also struggled to report profitable EBITDA. One change, which we've been able to bring in the last few years is at BOPP on its stand-alone is making reasonable margins.

[Unknown Analyst]

And any guidance on what would be the maximum debt that we would be looking in a year or 2, considering we are at now at, I think, INR 600 crore and considering the expansion we are taking up, what will be the maximum top of debt that we would be looking, that we could sustainably service considering the margin that we are running now?

[Pankaj Poddar, executive]

It's very difficult because if the markets improve, then the things look differently and if the markets don't improve, things look differently. But we are going to take additional -- we are basically doing INR 400 crores more CapEx in the next 1.5 years. And after that -- I mean, we have not gone ahead with more projects. So these were committed projects, which we had committed 2, 3 years back, which we are finishing them. And if the current situation prevails, then obviously, we will not further CapEx till the time the market improves. But what we feel is that if you're doing INR 400 crores, and we are generating cash from operations, so I mean, we personally expect that the total debt level should stay around INR 900 crores, INR 950 crores in those range. Neeraj, can give more clarity.

[Neeraj Jain, executive]

And just to add to it, you see even at the peak level of that also, we don't expect net debt to EBITDA to exceed 3x.

[Operator]

The next question is from the line of [ Amit Agarwal ] from Leeway Investment.

[Unknown Analyst]

My question is regarding how much money we have invested in Rigid packaging line and the other line we started that is capacitor films?

[Pankaj Poddar, executive]

The capacitor, we have created infrastructure for 2 lines. We have ordered 1 line, and we have invested close to INR 23 crores. The incremental CapEx for the second line should be INR 15 crores. So right now, it's INR 23 crores and so effectively, the infrastructure has been built for 2 line. And as far as on the window film or the heat protection films, we have...

[Unknown Analyst]

No sorry, sorry, I was asking about the Rigid packaging.

[Pankaj Poddar, executive]

Yes, Rigid packaging the total CapEx is close to INR 100 crores.

[Unknown Analyst]

We have already invested in that? Or we are supposed invest it further?

[Pankaj Poddar, executive]

No, no, no, all put together, all put together.

[Unknown Analyst]

So are these lines distributed to BOPP line or they are separate lines altogether?

[Pankaj Poddar, executive]

Sorry.

[Unknown Analyst]

Are -- is this infrastructure separate to the existing lines of BOPP and BOPET?

[Pankaj Poddar, executive]

Yes, yes. This is there in the same premises, but the assets are under different halls. So we have basically 2 sheet lines. We have 12 injection molding lines. And we have 2 thermoforming lines. These are the total investments we have done as a part of Rigid.

[Unknown Analyst]

And in this next year, [indiscernible] both rigid packaging as well as capacitor films lines working more than 50% capacity, right?

[Pankaj Poddar, executive]

Yes. We have just started this in September. But these businesses, we expect that capacity fill up should happen faster. The beauty about these businesses is that it will help us to connect with the brands in a much bigger way because these are going to be sold directly to the business or to the brands where there's a cost-plus pricing. Unlike film, which get impacted so much by the market I agree, in the rigid business, you sell to the brands in a cost-plus model.

[Unknown Analyst]

And my next question is regarding -- if I heard it right, you said BOPP line was shut down for because of lesser margins during the month of December? and It has started from the 1st of January. And I right?

[Pankaj Poddar, executive]

The closure also happened. One is obviously the market condition. But also typically, that's the Diwali time and this much time. And during the holiday time, typically, the demand dips. So one is any way there's a pressure on -- pressure because of oversupply. And then there was a further impact because of Diwali and Christmas. We decided rather than to sell below our cost, it's better that we shut down a small capacity and which we have already Neeraj just clarified that in January, most of that capacity -- I mean it's just 5% and most of it has already been restarted in January.

[Unknown Analyst]

So right now, the margins have improved compared to the last quarter?

[Pankaj Poddar, executive]

I don't think so, no, not really. Till now the margins have not improved.

[Unknown Analyst]

So any reason that you have started the line again?

[Pankaj Poddar, executive]

Yes. Because now that there is a temporary blip in demand. So overall, with this additional volume, we will make some absolute -- I mean, slightly better absolute margin. But what I was trying to answer is that in the market at large, the markets -- the margins of the commodity films have not gone up. But certainly we are trying to look more exports.

[Unknown Analyst]

Okay. And my last question is regarding exports only has the -- because we are exporting our goods through -- must be through shipping only, so have the problems created are export to slow down? Or have they hit the margins of exports?

[Pankaj Poddar, executive]

Honestly, it has not impacted us much, barring the fact that the freight cost did go up in end of December until January. And we now hope that by March, the freight rates would come down. In majority of the cases, we were able to recover freight from the customer. But though there were some cases because it was such a short window that some customers didn't agree to pay. So it's not a very major impact to our P&L. There is some impact to give, but it's not so significant.

[Operator]

The next question is from the line of Bhavesh Chauhan from IDBI Capital.

[Bhavesh Chauhan, analyst]

Sir, just wanted to ask that we are also investing in Zigly and it also requires working capital apart from growth CapEx. So beyond that INR 400 crore CapEx that we are setting up, how much more -- how much cash will be -- is being allocated towards Zigly and even our Specialty Chemicals business?

[Pankaj Poddar, executive]

Yes. So one of the things that we expect in the next year is that most of our new businesses will start earning money. So whether it's the Cosmo Specialty Chemical or Rigid Packaging, Cosmo Plastech, both these businesses will start earning money. Zigly right now is making losses full year at close to INR 30 crores at EBITDA level. And we do expect that next year also we will be making -- though the budgets are not yet finalized, but we will be making closer to similar loss numbers. But month-on-month, we are growing on the revenue side, and it's a very high valuation accretion business I'm sure the investors must be reading the valuations, which are being given to multiple players in the pet care industry. They are still small and getting very good valuations because the industry is expected to grow very significantly in the years to come. So Zigly, as such doesn't require much of a working capital other than some inventories that we have to keep in retail because all these sales is on cash. So there's no receivables, which gets involved, just the inventory per store that we have to add up and some inventory levels at the warehouse. But we do not expect any major movement on the working capital side. We will continue to incur some losses when it comes to Zigly business.

[Bhavesh Chauhan, analyst]

Okay. And sir, in terms of Zigly also, I mean, how are we competitively placed, and who are the largest players in this industry? And what is the competitive advantage that we are -- we have or we are trying to build in this business?

[Pankaj Poddar, executive]

Yes. We are the only player, which has built an ecosystem where we are providing veterinary services. We are giving diagnostics. We are giving grooming. They're training services and along with the product line with wide range of product line, and we continue to build some of our own house brands within Zigly as such. It's just the beginning of the house brand, but we will continue to build more house brands in the times to come. So the best thing is that we have the entire ecosystem, which is available online and off-line both for the customers.

[Bhavesh Chauhan, analyst]

And sir, about peers, who are the -- our peers who are also doing similar kind of work?

[Pankaj Poddar, executive]

Yes. So there are 2, 3 players which have now become prominent because a lot of investments have come from key players in them. So 1 is Heads Up For Tails, which I think 1, 1.5 years back was, if I recollect correctly, on our INR 75 crores revenue, they were valued for INR 750 crores. Second is Supertails, which got a valuation yesterday only. I think for a small stake, they got $15 million capital. Apparently, their valuation has been done for INR 1,500 crores to INR 2,000 crores. And third is JUSTDOGS, which is largely into retail. But obviously, we are the only player who has built the entire ecosystem as such. But these 3 players are emerging players, and there are a lot of other small players also, and most of them are getting valuations because this industry will be a growth oriented industry in the times to come.

[Bhavesh Chauhan, analyst]

Okay. And sir, lastly, what would be our sales of Zigly on a quarterly basis?

[Pankaj Poddar, executive]

Yes. So the monthly run rate has now increased to roughly INR 3 crores on a net revenue basis. On a gross level basis, we are close to INR 4 crores.

[Operator]

The next question is from the line of Jinal from Emkay Global Financial Services.

[Jinal Fofalia, analyst]

First question is, how do we define our specialty Semi-specialty and commodity business, It wouldbe helpful if you can put [indiscernible] around on this.

[Pankaj Poddar, executive]

Yes. So specialty is defined there are either no competitors or there are just 2, 3 competitors around the world, where we have stable margins and most of the businesses are MOU oriented. Semi-specialty is something which is where the margins are linked to commodity, but normally you end up getting some better margins on those products versus commodity products. And commodities, which is completely linked to the market, domestic market, whereas if margins go up, you earn more and if the margins go down you earn less.

[Jinal Fofalia, analyst]

Okay. Second question is, so what -- in the total sales, how much percentage of contracted sales in 2023? And in fact, do we do on financial year basis or calender year basis?

[Pankaj Poddar, executive]

We operate on -- obviously on a financial year basis. And most of our export sales is MOU driven. And as far as speciality is concerned, on a year-to-date, last year, we did 63%. And this year, we have hovered at 64%. Obviously, there was a decline last year from September till June of this year. And now for the last 5, 6 months, we are seeing an upswing in the specialty business.

[Jinal Fofalia, analyst]

Okay. And the product sales, would it be on higher prices? And is there any revision of the contract for 2024? Does company expect less margins in these business?

[Pankaj Poddar, executive]

Not really. Not really.

[Jinal Fofalia, analyst]

Not really, Okay. Okay. And so I just want to understand the profitability and volume of coating and thermal lamination films on Speciality Chemicals business. How is...

[Pankaj Poddar, executive]

Given specific details, we do not divulge are?

[Jinal Fofalia, analyst]

Pardon

[Pankaj Poddar, executive]

Given specific details, which we do not divulge.

[Jinal Fofalia, analyst]

and what is the current debt level of the company and how companies [indiscernible] we could see that EBITDA output down?

[Pankaj Poddar, executive]

Yes. So we are sitting at 2.4x EBITDA. It's in quite comfortable situation. We have a treasury of INR 400 crores. So I don't see that to be of any concern as such.

[Neeraj Jain, executive]

And just to add to it, you will also notice, you see at the end of the December, some of the capacity is noted full utilization. And on the top of it, some of the CapEx has already been done on the CPP and BOPP line, which is we yet to generate the revenue at the bottom line. So that is with the time to come once the full capacity is operational, these numbers will further get rationalized.

[Operator]

The next question is from the line of Sarvesh Gupta from Maximum Capital.

[Unknown Analyst]

Sir, I just wanted some more color on your specialty and Semi-specialty business. See, I mean, it is somewhat counterintuitive that despite having a very high share of these businesses, our margins overall are falling like a commodity company itself. So I mean what is causing such high fall in the margin despite you claiming that 2/3 of the business coming from specialty? Because mathematically, if you run the numbers, it shouldn't have fallen so much.

[Pankaj Poddar, executive]

See first of all, as I have stated in the beginning of the call, that we have reported 9%, but we have to also understand that we have incurred close to 2% EBITDA loss in our new businesses, especially in Zigly. And then we have also incurred close to 2% EBITDA losses in polyester, where the business is still largely commodity, only 15% in December we could reach to specialty numbers. So BOPP business still is at a very healthy level. The second thing is that you have to also see vis-a-vis competition results in terms of how they are performing. I would not like to name any of them. Investors can check in terms of the -- what is the industry profitability and what value Cosmo is able to bring in this tough conditions.

[Unknown Analyst]

Understood, sir...

[Pankaj Poddar, executive]

We said that we will totally be not impacted by what's going on in the industry because we still have close to 35% commodity business and close to 25% of Semi-specialty business, which does get impacted by the commodity margins. So we will have that impact in good times, obviously, those business learn more, and bad times, we will get impacted. But what we can clearly show that is that obviously, how the industry is performing and how Cosmo is performing.

[Neeraj Jain, executive]

So request you to refer [indiscernible], which has been recently updated, which has a slide very clearly indicating separately the margins for the specialty, Semi-specialty in the commodity part of business. And you will see it there very clearly in the community part of business. specialty is largely -- not going through these ups and down. Any specialty obviously had some impact, but obviously very low compared to the commodity part of the business.

[Unknown Analyst]

Understood. And is there any part of the business which was previously considered as specialty, but is now understood to be more commoditized given how some of the fall in the margin has happened? So have we also changed any classification between these 3 buckets of products pursuant to this fall in the margins?

[Pankaj Poddar, executive]

It has nothing to do with the fall in the margins. We do this exercise every 6 months. And if we find that any segment is gradually becoming Semi-specialty or from Semi-specialty to commodity, that is reclassified on a 6-monthly basis. Good market, bad market, we do this analysis 6 monthly. And wherever there is a shift in the specialty categorization or Semi-specialty categorization, we do that.

[Unknown Analyst]

Understood. So that's what I wanted to understand that, let's say, you are having 65% under this category, let's say, 1/3, 1/3, 1/3. So going forward, let's say, in another couple of years, what portion of these specialty and Semi-specialty would slip to the commodity segment? And how do we plan to sort of mitigate that?

[Pankaj Poddar, executive]

We have a very big pipeline of new products. And if you see our last 5 years, every year, we have grown on the specialty numbers. Only when last year because of post-COVID there were supply chain corrections that we had a small dip. I mean it was a reasonable dip. It was not a small dip for 6, 7 months or let's say 9 months. But beyond that, for 5 years, we continue to grow. There are some segments, which, during the years, might have come down on margins and categorized from 1 level to second level and then to third level. But overall, we have grown.

So we have a very strong product line where we will continue to push this and continue to grow our specialty and Semi-specialty business.

[Unknown Analyst]

Understood, sir. And sir, from a capital allocation perspective now, again, I think most of the money is going to be spent on the BOPP lines, et cetera, which will have a similar nature. And while we are investing in the adjacent business like the Rigid Plastics and all that, do we see that a major chunk of our allocation of capital going forward can be into the adjacent area rather than the core area? Or how do we see the overall opportunities that we have?

[Pankaj Poddar, executive]

So after this new BOPP, I don't think so for the next few years we are going to invest in any of these film lines. If you really see even our last BOPP line came in 2017. And after '17, the next BOPP line is coming in 2025. So that way, we have kept a very good gap between the BOPP. The polyester line was meant for specialty. And as I said in the last call that because our shrink film line had certain initial issues which got sorted out only in December end, which we are going to scale up very significantly in next 2 to 3 years. So polyester line was actually not supposed to compete on the commodity products, but we had to go that route because of delay in our edgy capability part, which is now fully sorted out. So we are not going to invest in these BOPP, BOPET lines for the next few years. And the new allocations would actually be done in all the new businesses, whether these are window film businesses, whether it's the Rigid Packaging, chemical business or Zigly. These are the 4 businesses where we will be investing more in the times to come. In the film business, our investments will go more on the value addition part. So it could be some kind of coatings or any special kind of metalization and things like that. Those are the areas which we would like to invest. This is 1 of the reasons that last 3, 4 years, we are looking at areas beyond film, and therefore, you have seen that we have invested in capacitor, window films. These are all very unique area. But the challenge in these areas is that if you invest in new areas, you have to -- it takes some time to start yielding results. And as I said, Rigids business is expected to start yielding results much faster. And so is the chemical now, it should start yielding quite decent results from next year. So there's always a 2-, 3-year lag when you start some of these new businesses. But good thing is that in the good times, we have invested in these new businesses, and this will help us to continue growth in the coming years.

[Unknown Analyst]

And these adjacencies, are they sort of big enough for you...

[Operator]

The next question is from the line of Vipul Kumar Shah from Sumangal Investment.

[Unknown Analyst]

Yes. Sir, my question is what is our cumulative CapEx for Pet care vertical?

[Neeraj Jain, executive]

See, pet care vertical is CapEx-centric, except some CapEx needs to be done while you open these stores. There is no significant CapEx as such. So it's largely OpEx centered and, as Pankaj said, we are close to INR 30 crore of negative EBITDA in the current financial year for the Zigly. But the good thing is, in Zigly, the percentage losses on revenue are continuously coming down, and they will continue to come down before we reach a point of start making money in that business.

[Unknown Analyst]

So can you quantify what is our current EBITDA loss as a percentage of revenue for the latest month?

[Pankaj Poddar, executive]

Latest month, we are still hovering close to 90% to -- I mean roughly close to 80% to 90%, somewhere in that range. If you se that's the business, which we should see in a different way because a large part of the OpEx or the CapEx -- sorry, the structure on the cost is committed now. With the revenue growth, which we expect in the years to come, so those cost as a percentage to revenue will get rationalized. And over a period of time, you will see it making the positive EBITDA.

[Unknown Analyst]

Sir, my second question is, in light of substantially reduced cash flows in our core film business, are we reviewing any of our capital-intensive projects like BOPET line and where we are spending roughly INR 350 crores? Are we rescheduling it or postponing it? So what is the management's thinking?

[Pankaj Poddar, executive]

You see, as we said, from now onwards, we have a commitment of close to INR 400 crore of CapEx, largely on the BOPP line and CPP line. So besides these, currently, we are not reviewing any other major project. So I do not see any major CapEx having in the next 2 years, 3 years time.

[Unknown Analyst]

No question was, are we rescheduling this line also?

[Pankaj Poddar, executive]

Not really. Finance is already too late. And second is, as I said earlier, that -- we understand that BOPP margins are so low, but we also said that BOPP oversupply is not so bad. So right now, some of the players perhaps are intentionally have cut down their prices, which is -- to us, is not logical. Better sense will prevail in this market. And we do expect that in 12 months of time, the demand and supply should be pretty balanced and margins in any case, should go up.

So I don't see that as a huge concern as such. So obviously, then our line will come up, and we will see at that point in time. And by that time, we also expect that specialty will continue to grow. But to answer your question, we are not expecting to delay this process. That will be more, I would say, problematic in the sense that we have already done a major part of the CapEx. So that is not going to help really to defer that CapEx. We will start earning money on that BOPP line irrespective given the wide variety of products that Cosmo makes when it comes to BOPP terms.

[Unknown Analyst]

And sir, my last question is regarding share of specialty and Semi-specialty, it is hovering around 63%, 64% since last 1.5 to 2 years, means we are not able to move that percentage higher. So does it mean that our new products are not gaining market acceptance. So what is your view on that, sir?

[Pankaj Poddar, executive]

So actually, the European market was quite subdued. Actually, it went down, as I said earlier. In fact, in last year, 1 of the months, it exceeded when the going -- was going very well. Though the quarter numbers were still at 66%, 67%. But 1 month we touched 70-plus percentage. And then all of a sudden supply chain corrections happened and it went down to 57%. It has gone up again to 67% in the last month. And 1 of the segments where we are present, where the supply chain corrections, as per the customer, is still not completed, and therefore, that segment numbers are not coming, which otherwise was quite reasonable to us. So if that segment had been operating now, we would have crossed, or we would have been close to 70% again. So we are growing. It's just that the supply chain corrections hurted us in between. And now we are seeing a new phase of growth coming in the specialty.

[Operator]

The next question is from the line of [indiscernible], Individual Investor.

[Unknown Attendee]

Hello, sir, my question is only one. Pankaj ji, you just now said that, right, you have seen these sort of cycles twice since the year 2000. So what is your experience at actually how long it continues 12 months, 18 months or whatever. And right, this particular cycle, what we are seeing right now, when it started, we can just throw light on that?

[Pankaj Poddar, executive]

So typically, what we have seen in these cycles remain from a year to 2 years. When it comes to BOPET, it's already been 18 months now. But to be honest, in BOPET, we never have seen so much of overcapacity. Right now, when I talk about BOPET films, there is close to 30% over capacity, which is quite a difficult scenario. So it's very difficult to project that when the BOPET margins will become positive. As a company, when it comes to BOPET, our focus remains on creating specialty portfolio.

As I said, that December, we touched 15%, January we touched close to 18%. So we are putting a lot of efforts on increasing specialty in the BOPET business. And as I said earlier that in the next 3 to 4 quarters, we expect that in such a worst market, we'll start to break even and start making some money even in the BOPET business side.

Coming to BOPP, there is not so much of overcapacity, but some players are resorting to price reductions just to make sure the lines are running. To me, that's not so logical, honestly, but we have to live with the market realities. We do hope that in the next 12 months, demand and supply should be more balanced and BOPP should perform better. But to answer you, in the past, we have seen that these are linked for 20, 24 months.

[Unknown Attendee]

And when this cycle -- the project cycle has started in your opinion?

[Unknown Executive]

That only god can tell.

[Pankaj Poddar, executive]

On a rational basis, BOPP should not take so much time. On a rational basis, BOPET, there is a lot of overcapacity. So that can take time. But typically, what we have seen is even last time when it happened in BOPET in '17, '18, what we saw is 1 major player globally busted and then immediately, the margins improved. So these are situations where something has to change. And it all depends who has how much capability to literally deal with it. And then something happens, either the raw material starts falling short or something happens with somebody or the other and the demand keeps growing and then the margins get corrected. So this is a cycle in the commodity cycle, and we have to live with it. So as far as projections are concerned, I can give you a rational projection but at time does not go completely with the logic as well.

[Operator]

The next question is from the line of Miraj from Arihant Capital.

[Miraj Shah, analyst]

Just wanted to ask you to -- if you could just mention the contribution margins that you answered in the previous question, I missed that part. How have they moved in Q3 till date in BOPET and BOPP both? Hello?

[Neeraj Jain, executive]

See, in Q3, there was a drop very clearly in the both businesses, BOPP and BOPET. You asked Q3 versus Q2 or you asked Q3 versus Q4?

[Miraj Shah, analyst]

No, no, sir. From Q3 till date, so in the month of Jan and just the start of Feb It's first week of Feb If you could just highlight how margins have moved. So are they on the improving trend or are the same? Or have they gone down?

[Neeraj Jain, executive]

So far, the margins is in broadly in line with the Q3.

[Miraj Shah, analyst]

Understood. Okay. And sir, by when do you expect the recovery in these margins? Is it still a 6-month theme? Or do you think it's more of an extended period beyond that as well?

[Neeraj Jain, executive]

So I think Pankaj just tried to explain this in previous question, very difficult to time it, but definitely in the medium terms, we see margin to get normalized.

[Miraj Shah, analyst]

Understood. Lastly, sir, if you could just let me know the guidance going ahead for FY '25 and '26?

[Neeraj Jain, executive]

Sorry, we do not provide any guidance.

[Operator]

The next question is from the line of [ Deep ] [indiscernible].

[Unknown Analyst]

Am I audible?

[Pankaj Poddar, executive]

Yes.

[Unknown Analyst]

Yes, sir. My question to you is, what will be the sales mix in FY '25 in terms of various kinds of films?

[Pankaj Poddar, executive]

FY '25, it is very difficult because it's linked to raw material prices and the margins on assets the commodities. This year, there is a volume growth still the revenue numbers are coming down. So very difficult to share these numbers. Broadly, they will stay, I will close to INR 3,000 crores plus/minus some percentage.

[Neeraj Jain, executive]

And just to accurate, you see in FY '25 company's new capacities getting kicked in, in terms of CPP line, which has nameplate capacity of close to 25,000 metric tons. So this will be a significant addition. And some of the capacities which we started during the current financial year, like the thermoforming capacitor metalizing, those will -- those we expect to run close to full CapEx utilization next year. So those will provide further support to top line growth.

[Unknown Analyst]

Okay, sir. Got it. Sir, my follow-up question is the excess capacity, is it only due to domestic markets? Or is it due to higher imports or dumping?

[Pankaj Poddar, executive]

So there's no import. I mean if you see the import export data for India as well, there's no significant imports happening in flexible packaging industry in India. So that is largely the additional capacity in the domestic industry.

[Operator]

The next question is from the line of [ Marshall ], an Individual Investor.

[Unknown Attendee]

Hello?

[Pankaj Poddar, executive]

Please go ahead.

[Operator]

The next question is from the line of Sarvesh Gupta from Maximum Capital.

[Unknown Analyst]

Sir, just to continue on the previous question. So see, we are now investing more and more capital in the adjacent business. So I mean, are there opportunities meaningful enough to drive meaningful growth for the overall company? Because -- I mean, while these opportunities are there, but still they look to be of a small sort of size compared to our overall level of thee s and EBITDA.

[Neeraj Jain, executive]

Oh, yes.. So these industries, I mean whether you talk about window films globally, they are close to $2.5 billion market, expected to become a $4 billion market by 2032. Rigid packaging has became very big market in India. Chemicals is a huge market in India, whether [indiscernible] or masterbatches. And Zigly, again is expected to grow very significantly in the years to come. We have invested in growth industries. Obviously, on day 1 in a new segment, you would not like to invest huge money. You have to go step by step, and that's what we are doing. We are going step by step. As we see more momentum in these areas, we will scale up and grow. But you do not end up creating INR 3,000 crores company in a short period. These things take time, so we are, of course, trying to make sure that we are making a decent entry. And then once we do that, we will certainly scale them up. All these are scalable. There's no doubt to their scalability as such.

[Unknown Analyst]

And what do we bring on to the table? Is it like selling to the same customers? Or anything else that we bring on to the table, which will put a certain advantage vis-a-vis anyone else who is trying to enter into these new segments, which are still subscale?

[Neeraj Jain, executive]

Yes, every business has its firm niche. If I talk about chemicals business that's a technology business. If you are able to give better properties to the customer, then customer is ready to work with you. And obviously, we have the credibility and goodwill with the customers. When you talk about Rigid Packaging, that helps you work greatly with the brands, which is what any company wants because then you are ready to come a Tier 1 supplier. And there, unfortunately, there are not many organized players. You see only a couple of players in that. One is Mold-tek that you know, which is there is Rigid Packaging. Then second is your Manjushree, which was later on acquired [indiscernible]. So there aren't many organized players, and therefore, brands are looking forward to work with bigger players. And that is the reason that already a couple of very large brands are signed up with us. When you talk about window films, it's a global business. You know already 1 of our competitors do make window films, and you know the -- about their financials as well. And they're also -- it's about bringing unique products that itself -- is a complete business in itself with several solutions which we provide to the customer. So all these -- and Zigly again, there a host of services and products. So there're a lot of unique value propositions that you have in each 1 of them, and all of them are scalable. And we intend to invest step by step in all of them.

And as I said earlier in the call that we have right now invested quite a bit in the films, but in the times to come, we will be investing more in these new businesses.

[Unknown Analyst]

Understood. And on Zigly, so what kind of capital is required to sustain this sort of level? So let's say, we are at INR 35 crores, INR 36 crores net revenue business right now. So what kind of capital we have invested in? And incrementally for every unit of sale how much of capital do we need to deploy? So that is apart from the P&L losses, which I understand that maybe in 12 to 24 months, we might reach breakeven. But what kind of capital is needed in addition to the losses to support this business?

[Neeraj Jain, executive]

Last 2, 2.5 years, we've invested close to INR 55 crores in Zigly. And over the next 2 years, we expect that we'll be investing another INR 80 crores to INR 100 crores. And for sure, for the next 2 to 3 years, we will -- we do expect that we will become profitable. And irrespective, we will also carve out in a separate company within the next 2 years, which we also announced the market earlier.

[Unknown Analyst]

And that would be -- so in the next 2 years, maybe we were targeting maybe around INR 200 crores or something thereabouts in terms of the net revenue, GMV -- net revenue value?

[Neeraj Jain, executive]

Net revenue, I don't think so because we are right now running at INR 3 crores run rate, so reaching to INR 200 crores, maybe too optimistic. But we will certainly try and target somewhere -- I mean, it's again giving projections, and we don't see any reasons of giving too many projections. But for sure -- I mean we feel we will be in the range of INR 125 crores to INR 175 crores somewhere in between.

[Operator]

The next question is from the line of Gaurav from Invesco Enterprises.

[Unknown Analyst]

So sir, these new businesses that we have launched the last 2 years specifically right from Zigly and then to this metalized capacitor film and now in the Plastech segment, right, that is a Rigid Packaging performance, right? So what is our expectation that in, let's say, next 2 to 3 years, these can add in terms of percentage to our top line. So will it be 10% of our top line, 15% of our top line?. So what is your expectation on this?

[Neeraj Jain, executive]

If films business would not be growing, then I would have said that they will reach 15%, 20%. But the fact is film business will also continue to grow quite a bit. So right, overall, we feel that they should be close to 10% with the way even the film business is expected to grow.

[Unknown Analyst]

Okay. And in terms of the, sir, EBITDA margin in this new CapEx, so Zigly, we know that there's an e-commerce take from kind of offering but in the Rigid Packaging or the metalized capacitor films or I would say Sun protection films also for, Is the EBITDA margin is going to be somewhat higher or it is going to be on the same lines that we are earning in our traditional business?

[Neeraj Jain, executive]

See film business is a fluctuating margin business while all other businesses will have a much more stable business. We do expect that next year, Cosmo chemicals, capacitor and rigid packaging will start to make money. We do expect in 3 to 4 quarters even in this first market, polyester will start to break even. Windows film will take at least 1 year, 1.5 years to turn profitable because that also is the consumer business. And Zigly will continue to make losses for another 2, 2.5 years.

[Unknown Analyst]

Sir, last question from my side, if you can help me. I'm not sure if I heard correctly during this call. But in the Rigid Packaging, are you competing with competing with Mold-tek Packaging in some way -- on some of the product segments that you have launched?

[Neeraj Jain, executive]

Yes. The IML containers are competing with Mold-tek. And we're also making thermoform containers and trays, which is competing with Rajshree.

[Unknown Analyst]

That's it. And sir, in Sun protection films that you briefed, are you competing with Garware in that segment in the export market or in domestic? Is that correct understanding, or have [indiscernible] in that segment?

[Neeraj Jain, executive]

Yes, Garware is the producer of these films, but, as you may be aware, Garware, as of now doesn't sell much in the domestic market, though, obviously, now they're also trying to increase their domestic market presence. But yes, they're the other competitors in India. And globally, if -- they're close to 4 to 5 established players in this segment. So in China, there are multiple producers for everything, and so is the case for window films. But as far as established players are concerned, globally, they are close to 4, 5 players.

[Unknown Analyst]

That's it. And our focus in this particular segment is going to be domestic and export?

[Pankaj Poddar, executive]

Both.

[Operator]

The next question is from the line of [ Urmi ] Khanna from Robo Capital.

[Unknown Analyst]

I have 1 question about the CPP and the BOPP expansion in FY '25 and '26. What do you see the revenues contribution from this expansion and realization?

[Neeraj Jain, executive]

See, CPP will be added up in '24, '25, and BOPP will start from FY '25, '26 first quarter. So both will start from first quarter of the respective year. As far as both put together, they will add up to close to INR 1,000 crores on reaching full capacity, but we don't expect that within the first year itself they'll reach full capacity. They may take some time.

[Unknown Analyst]

And also on the margins front, what do you expect it to be?

[Neeraj Jain, executive]

See, to be honest, first year, we would be largely dealing with commodities. So we'll be linked with commodity margins on these new capacities. But here also, the target is that we are working with different, different segment customers and build specialty. When I talk about CPP, is already working with so many different brands to give them very unique solutions. We have made -- already made 4, 5 very innovative products that we're in the process of launching with our existing CPP lines. So there, the focus will remain on specialty, but in the first 2, 3 years, commodity business will be more and gradually, it will get converted into specialty business.

Commodity business is very difficult to comment on any margins because they keep fluctuating. But BOPP, as we said, there is largely, at least is going to be balanced by the time our line comes. So we have to see how the commodity margins play out.

[Operator]

Ladies and gentlemen, that was the last question for today's conference. I now hand the conference over to the management for closing comments.

[Neeraj Jain, executive]

So from the closing comments perspective, I have 2 key messages. One is on the margin side for the flexible packaging. So we see near-term outlook for the BOPP and BOPET films is expected to remain challenging. However, we should get normalized in the medium term. The company's strong specialty films portfolio shall continue to help this during this period and which, in any case, we are further expanding like sun control film. Second is, among the new business verticals as well, whether you name CSC, which is specialty chemicals, capacitor metalizer or the rigid plastic under the brand name Plastech, all are expected to earn decent EBITDA from the FY '25. While Zigly may take some time to become profitable, however, should be a significant value creator.

So with this, I will take it off, and would like to thank you all for joining the call. At the end of the call, I would like to further repeat the statuary declaration. Certain statements in this con call may be forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. These statements are not guarantees of future results. Thank you for joining.

[Operator]

Thank you. On behalf of Cosmo First Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.